Economics

Monsanto RIP

In a few weeks it is quite likely that Monsanto will disappear as an independent company, and become part of Bayer. Monsanto has been an iconic company that drastically changed the plant-breeding sector in a manner resembling the changes brought by Microsoft and Apple in computing and Tesla in cars. Monsanto will be gone but its products and actions will endure.

Monsanto has its shares of triumphs and controversies. One of its scientists won the Nobel Prize for developing a chemical used to treat Parkinson’s disease, and the company supported breakthrough research on cancer. It introduced the first mass-produced LEDs, which drastically reduce energy use for lights. It invented several important chemicals and even invented AstroTurf, among others. It also produced DDT (which helped combat malaria) and Agent Orange, and both were tragically misused. Altogether it was a solid chemical company, but not a dominant player.

In the 1980s its management team recognized the potential of new knowledge in molecular biology, stemming from the discovery of DNA and gene transformation technologies, to address pest and disease control — especially in agriculture. The company changed direction, invested heavily in developing an excellent research team in biology and life science.

One application was recombinant bovine growth hormone (rBGH), which aims to increase the yield of milk. This technology was moderately adopted (<20%) and was sold to Eli Lilly. But the main applications were for crop science. Monsanto obtained the right to agrobacterium that allows for transfer of DNA between plants, acquired knowledge and skills to augment its capabilities, and developed the first large-scale application of agricultural biotechnology. Other chemical companies also attempted to develop genetically modified varieties, but Monsanto was at the head of most of them.

The development of its innovative capacity followed patterns consistent with the notion of educational industrial complex. Namely, in addition to developing a strong in-house research capacity, Monsanto relied on innovation generated at universities by purchasing both rights to technologies as well as taking over startups and other companies. In particular, beside buying the rights to agrobacterium, Monsanto took over Agracetus, a company that generated the first transgenic cotton, soybeans, and other crops, and Calgene, the creator of Flavr Savr tomato, and others.

The development of new GMO technologies was challenging and expensive. In addition the implementation of new GMO varieties required creating a new supply chain. GMO technology inserts traits, for example insect resistance, to existing crop varieties to achieve new, modified varieties. Insect-resistant varieties, for example, serve the same purpose as chemical insecticide, which are a segment of pesticides. Chemical insecticides are sold through a network of dealers who then sell to farmers. This network cannot be used to sell the GM varieties that include the insect control trait. But Monsanto didn’t have a seed business at first. In order to reach the seed market, it sold the rights to Roundup Ready soybeans for $450,000 in 1992 and Bt corn resistant to corn borers to Pioneer for $38 million in 1993. Pioneer made huge returns on their investment and made Monsanto realize that they needed to have their own seed business.

Beginning in 1996, they began a series of acquisitions amounting to $8 billion. They purchased Holden’s Foundations Seeds (corn), DeKalb (corn), Cargill’s international seed business, Delta and Pine Land Company (cotton) and Seminis (vegetable and fruit). Altogether, by 2015, they became the biggest supplier of seeds in the world with 26 percent of the global seed market. In addition to selling the GM traits through its seed business, Monsanto also licensed the right to use its traits to other seed companies, who pay a royalty.

Over time, the number of traits that Monsanto developed has increased; and seed companies now sell varieties that are “stacked”, meaning they have multiple traits. For example, a seed may include insect control (Bt) as well as herbicide tolerance (Roundup Ready) traits. The prices of seeds can be decomposed to include the price of the seed (net of the GM trait) plus technology fees for the various traits. Furthermore, Monsanto provides user contracts, as well as technology use guides. Farmers are supposed to follow a management program that includes a resistance build-up program and are barred from reuse of seeds or selling them, among other restrictions. Monsanto considered developing a “terminator” gene that would render the offspring of transgenic crops infertile. That would make them functionally equivalent to hybrids, and reduce the risk of gene flow, but the technology remains in the lab.

Monsanto’s supply chain of GM varieties drastically altered customs in the seed industry by requiring purchase of seeds and barring reuse of seeds. In many regions, especially in developing countries, farmers may get seeds from the public sector and then reuse them. Yet, Monsanto required farmers to buy seeds and not to reuse them. However, in the United States and Western Europe, increasingly farmers purchase seeds from dedicated seed producers every season. In the case of hybrids, which cannot reproduce themselves, farmers must purchase seeds. The development of a dedicated seed supply sector that provides high quality seeds is one reason for the huge gap in yields between developing and developed countries.

By introducing transparent pay for seeds and traits, Monsanto modernized the seed business and provided an incentive to the public sector to get engaged and provide improved genetic material. There is vast evidence that GMO varieties tend to increase yields, reduce insecticide use (while increasing herbicide use), especially in developing countries, and increase farmer profit. Nevertheless, this new approach angered purists and caused significant backlash and legal cases against Monsanto and “GMOs” in general.

Development of the new GM traits and varieties required many steps and was very costly. Many Monsanto scientists were driven by the belief that their technologies were beneficial to the environment.[1]Indeed, innovations like Bt cotton and corn reduced pesticide use and Roundup Ready crops were important in the introduction of no-tillage technologies that sequester carbon. However, the technologies encountered strong objections from environmental groups. These objections stem from concerns about gene flow as well as unknown environmental and health consequences using biotechnology in agriculture. Yet Robert Fraley won the World Food Prize in 2013 with two parents of transgenic crops, research councils throughout the world found time and again that biotechnology should be utilized while the risks are being monitored and controlled, implying that the benefits much outweigh risks and that biotechnology offers an alternative to more risky and harmful practices, and 119 Nobel Laureates and thousands of scientists support GMO and Golden Rice. However, activists continue to oppose it strongly and develop networks to oppose it, with Monsanto as the biggest target.

The opposition to Monsanto wasn’t confined to activists. Some chemical companies lost billions in sales of chemicals that were replaced by genetics. Their interest was to ban, or at least slow, the introduction of GM traits to maintain profit and allow time for them to adjust. I have heard more than once that chemical companies contributed to slow Monsanto’s progress. When I was a member of the National Research Council’s committee on the future role of pesticides in US Agriculture, we heard from a Bayer representative who suggested that GM technologies has very limited potential in the near future and most of the effort in the US should focus on chemical controls.

These objections resulted in very strong regulations of GM technologies which increased the cost of developing new varieties and traits, and limited the application of GM to major crops like corn and soybean. But the strong regulation might have indirectly assisted Monsanto to some extent because of the high cost of entry to the industry that reduced competition. In Europe and many other countries, especially in Africa, regulations basically banned the production of GM crops there resulting in major monetary and health costs. In addition to ban GMs, there were recently significant efforts to label GM foods in a way that would make it less attractive. The political objections to GM foods led Monsanto to invest millions in various political campaigns and political activities. These efforts, and the continuous debate, painted Monsanto as one of the most hated companies in the world.

At the same time, Monsanto was constantly considered one of the best places to work. From my encounter with the company, and speaking with many people, employees believe in the mission and direction of the company and feel victimized by special interests and lack of information and appreciation of the radical technologies they produce and its potential for good. Monsanto’s employees belief in their own way as well as some sense of victimhood might have contributed to what is perceived as aggressive behavior. In the last few years, I realized that some within Monsanto realized that their own behavior might have contributed to negative attitudes towards their product, and they attempted to become more friendly and cuddly. I don’t believe it will work.

The Monsanto employees I met care about the environment and climate change deeply and believe that they provide appropriate solutions. In the 1990s, I was part of an EPA White House Task Force on strategies to implement the Kyoto Protocol and I witnessed how Monsanto contributed to efforts to include soil carbon sequestration as part of the carbon accounting in the Kyoto Protocol. Obviously they did it because no-low tillage was a key strategy to sequester carbon and it relied on its herbicides. But I was impressed by the knowledge and concern of their employees about climate issues and efforts to develop strategies to address these issues. A few years later I was asked to evaluate Monsanto’s research on sustainability, which led to a paper I contributed to. I realized that Monsanto had a strategy to address climate change and environmental side effects from agriculture by increased precision, where a multitude of varieties and other practices are adjusted to specific agroclimatic conditions taking advantage of information technology and increasing climatic knowledge. This vision is consistent with a lot of my early work where I believed that biotechnology and information technologies are complementary in achieving environmental and efficiency goals in agriculture.

I wasn’t surprised that Monsanto recently bought Climate Corps and has started to invest in big data in agriculture. They realize that concerns about climate change, food security and the new opportunities of the bioeconomy will give rise to agricultural systems that combine biology and information technology. And they want to be a major part of this new way of doing things. While GMOs will continue to be a major part of their business, they realize the political reality constraining its application. They realize that GM is likely to be used mostly in feed and fiber, but not food, in the near future. This is a pity because I believe that GM has a much larger potential to help adaptation to climate change and food security in the production of vegetables, fruits, and other food products. But as I see it, Monsanto will take advantage of their big portfolio of genetic material with new developments in gene editing and other new biological and precision technologies.

Many of the critics of this vision assume that it requires large corporate farms. But that is not the case. Monsanto likely benefit more when agriculture consists of many small farmers that buy its products and information services, and having large input suppliers (like Apple that supplies cellphones and John Deere that supplies tractors) doesn’t preclude having millions, or even billions, of small customers. One assumption that Monsanto and others have is that some subsistence farmers in developing countries will be incorporated in the information age and will utilize these technologies, which will help them adapt to climate change while improving their livelihood. When we see the cellphone revolution in developing countries, and the millions of farmers that already agricultural biotechnology in India, we realize it is not an unrealistic vision.

Despite the troubles and tribulations of Monsanto, the company has done very well. They almost got eliminated in 2000 when they restructured, and if we look their stock performance, it’s quite good. Monsanto realized that some of the limitations their image entails. Their leadership is getting old and would like to cash out. When Bayer approached them offering $125/share when the price was around $100/share, they agreed to the deal. Bayer needs the deal to complement its strength in the agchemical segment and become a major player in the biotechnology revolution. Perhaps the change of ownership to European hands may improve the prospects of GMOs in Europe. Now they need the approval of US government and the EU, which will address issues of market concentration. This merger is part of the consolidation of the seed and chemical sectors that sees also a merger of DuPont and Dow as well as the takeover of Syngenta by ChemChina. Whatever happens to Monsanto, the vision of using modern technology to enhance agricultural production and address challenges of climate change will endure.

[1] For an excellent review of the evolution of the agricultural biotechnology industry, read Lords of the Harvest.

Comments to “Monsanto RIP”

I believe normally we would see a disclaimer like ‘This commercial has been brought to you by generous donations to and acquisitions of intellectual property from the University of California by Monsanto’.

Nevertheless lots of useful information scattered here among the propaganda.

An October 29 New York Times story disputes the notion that GM crops have raised yields, reporting that “About 20 years ago, the United States and Canada began introducing genetic modifications in agriculture. Europe did not embrace the technology, yet it achieved increases in yield and decreases in pesticide use on a par with, or even better than, the United States, where genetically modified crops are widely grown.
Full story at http://www.nytimes.com/interactive/2016/10/30/business/gmo-crops-pesticides.html

The article by Danny Hakim on GMOs includes useful information but is misleading.
The early literature on GMOs (Qaim and Zilberman, Science 2003), from the beginning, expected that the yield effect of insecticide resistant varieties (Bt) would be modest in developed countries but more pronounced in developing ones. This is indeed what the meta-analysis of Klumper and Qaim finds, as reported in the article. And therefore, there is no surprise that the yield effect of corn in US didn’t change much relative to Europe. Bt varieties actually reduce pesticide use, save lives, and increase yields in the developing world. Herbicide tolerant varieties (RoundUp Ready) didn’t aim to increase yield per acre, but rather to save labor and allow low-tillage practices (and thus reduce greenhouse gas emissions). These were the only varieties that were adopted with rapeseed in Canada, and no one expected a yield effect. The surprise, however, was that when herbicide tolerant varieties were adopted with soybeans, they enabled double cropping of soybeans with wheat, thus increasing the output per acre and overall supply substantially. The bottom line is that the impact of GM on cotton and corn in developing countries, as well as double cropping effect, increased supply and reduced commodity prices in addition to saving toxic insecticides, reducing greenhouse gases, reducing labor in weeding, and increasing incomes of farmers (Bennett et al, Annual Review of Environment and Resources 2013).

The article doesn’t emphasize that agricultural biotechnology is far more than Bt and RoundUp Ready varieties. It enables plant breeders a more precise and fast way to generate traits that provide social benefit. Already, there are hundreds of traits “in the labs”, but unfortunately we are utilizing only a few of them. The tragedy is that over regulation and bans prevented taking advantage of the potential of GM technology in locations where they can be most useful- in developing countries. GM is not a silver bullet, but it can be an extremely valuable as part of a diversified agricultural toolbox. Thus far it has performed very well given regulatory constraints, and arguments that conceal the complete picture misinform the policy debate.

Congratulations for the excellent summary 🙂
Just one remark: when you write that “GMO varieties tend to increase … herbicide use”, you may specify that the most used weed killer, i.e. glyphosate, is more environmentally friendly than previous or similar ones (http://naldc.nal.usda.gov/download/17918/PDF). Since herbicides, and glyphosate in particular, are the target of much “anti-GMO” propaganda, laypersons and students should be informed that what counts is not mostly the QUANTITY of product, but its EIQ (environmental quotient impact). To make it simple, if I double the use of a product but it has much lower undesirable side effects, I may end up with a net environmental “gain”. Although we should not forget that assessing the actual impact of agriculture, and of herbicide in particular, is not an easy task (and that the value of EIQ as a tool is being criticized: http://weedcontrolfreaks.com/2015/07/an-evaluation-of-the-environmental-impact-quotient-eiq/), the alternative to herbicides – be they chemical or “organic” – is simple (dear Professor, correct me if I am wrong): deep ploughing (with the related environmental impact deriving from the use of machinery, fuel, CO2 releasing, disruption of soils etc.) and/or pulling (remaining) weeds by hand. Sorry I can’t remember the source (maybe a blogpost in Jayson Lusk’s or Andrew Kniss’ websites?), but I read that the human labor required by pulling weeds would mean that, in the USA only, many million American students would spend their summer in the fields – that may be educational though 🙂
As for professed “environmental” groups, I would not use that adjective for them when their actions go against their avowed aims, i.e. when they fight against technologies and operations which are actually beneficial – or, better, less detrimental – to the environment they claim they are protecting: in those cases, such activists are anti-biotech. Period.

This article is supposed to be about Monsanto, but is actually a good overview of the history of GMO crops in the world.

Back in the 1930s, there was good public transportation in the San Francisco Bay area. That included commuter trains across the Bay Bridge. Then, an odd thing happened. General motors (GM) bought the train systems, and systematically tore out the tracks. The strategy was to sell more cars. It took decades before a train crossed between Oakland and San Francisco again (the Bay Area Rapid Transit BART tunnel under the bay).

I was amused that This time Bayer is buying GM (genetically modified). Do you suppose they might tear up the Monsanto tracks of GMO crops than need less insecticide; so Bayer can sell more? Just a thought.